As Joni Mitchell said, you don’t know what you got till it’s gone. Only when cheap credit is over do we realise how much we relied on it, and that what Gordon Brown wrongly labelled “prosperity” was a debt-fuelled mirage.
The key to making sense of the credit crunch is to ditch the old measurements and find new ones. The Bank of England base rate doesn’t matter anymore, mortgages have a life of their own. Today the Bank showed what’s happening.
Base rates may not have moved, but interest rates certainly have. The average interest rate on a 75 percent LTV (loan-to-value) two-year fix jumped to 6.63 percent last month from 6.26 percent in May. Ouch. It is up a full point since Christmas. Mortgages are now at their most expensive since February 2000, when the Bank policy rate was 6 percent, not today’s 5 percent.
Fleet Street remains behind the times, attaching to MPC meetings significance they no longer have. These figures show what’s really happening in the credit market and they should get huge prominence in tomorrow’s press. But it will be another year, I suspect, before the Brown bubble is called by its name.
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